The Metropolitan National Sacco is grappling with massive debts after dishing out ‘risky’ loans worth billions of shillings.
This has drastically affected its liquidity. For instance, in the last eight years, the amount of money the Sacco has been borrowing from commercial banks to bridge the gap between member deposits and loans rose from Sh653 million to Sh3.143 billion as at December last year.
Presently, the Sacco has a member deposit of approximately Sh6.9 billion and Sh700 million member shares. However, the outstanding loans are worth Sh12.8 billion, reflecting a difference of Sh4.3 billion.
Eight per cent of the outstanding loans have been defaulted.
This has left the Sacco without money to meet the needs of its over 100,000 members, some of whom have been withdrawing their money amid fears the 43-year-old society could sink with their savings, leading to deeper liquidity problems.
Since last year, the members have been complaining that they cannot access their salaries or loans when channelled through the banking wing, complaints that saw investigators from the Sacco Societies Regulatory Authority (Sarsa) raid the institution to investigate its stability.
While the Sacco managed to disburse Sh5.2 billion loans in 2017, the Sacco only managed to disburse Sh1.19 billion last year, perhaps an indicator of the financial challenges facing the institution.
The Sacco’s supervisory committee — in its report signed by chairman Joseph Gachunja — and an audit report by Finitech Frontiers, a financial consultant, have indicted the management board for the bad operation practices which are largely to blame for plunging the Sacco into liquidity problems.
Some of the issues raised include violation of debt ratio policy, lack of proper lending frameworks, especially on lending to non-salaried members, “that led to poor performance”, bad management of loan portfolio and lack of co-ordination in the loan processing whereby staff approve loans “with no idea if there is money”.
For example, whereas the Sacco debt ratio stipulates that a borrower should take home at least a third of their salary, the practice was violated, making borrowers to qualify for much more loan amounts than would have been possible if the policy was adhered to.
This, the supervisory committee said, has placed the financial stability of Metropolitan, which was started by teachers in Kiambu before accommodating other professionals and businesspeople, in a “precarious position”.
“Decentralising loan processing and disbursement has resulted in lack of co-ordination, especially of the liquidity management where staff approving loans have no idea whether the Sacco has the money to lend in the first place. This could have partly contributed to the current cash flow constraints,” reads the supervisory committee’s report in part.
Mr Titus Karanja from Finitech Frontiers, who had been tasked to audit the society’s operations and give recommendations on how to help it stabilise, said although the Sacco can survive the tide, its current financial capacity is not sufficient to meet all the members’ needs.
“As we speak today your Sacco (Metropolitan National) is liquid, but is not liquid enough because of the withdrawals that were being done last year … by the members who were withdrawing their money at the FOSA and savings,” Mr Karanja said, adding that the management cannot escape the blame for giving out unmanageable loans.
The Sacco’s chairman, Mr Christopher Karanja, acknowledged that they have been having problems with recovering loans but said they have engaged services of external debt collectors.
The Sacco’s annual general meeting held at Kiambu High School on Saturday was marred by shouting and heckling as members displayed their dissatisfaction on how the Sacco is being managed.
During the meeting, a representative from KK Security firm, whose employees are members of the Sacco, said the mess “has tremendously affected the relationship between their workers and the Sacco management”.
Further, the Sacco’s financial woes deepened during the year under review after the assent value dropped by Sh256 million in the last one year, having dropped from Sh13.9 billion to Sh13.65 billion.
The chairman said this was “mainly on account of increase in provisions and rising cost of external debt”.